UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 0-16132

CELGENE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		22-2711928
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
86 Morris Avenue, Summit, NJ		07901
(Address of principal executive offices)		(Zip Code)

(908) 673-9000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

At October 23, 2008, 458,188,433 shares of Common Stock, par value $.01 per share, were outstanding.

 

 

CELGENE CORPORATION

FORM 10-Q TABLE OF CONTENTS

		Page No.
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements
Consolidated Statements of Operations — Three- and Nine-Month Periods Ended September 30, 2008 and 2007			3
Consolidated Balance Sheets — As of September 30, 2008 and December 31, 2007			4
Consolidated Statements of Cash Flows — Nine-Month Periods Ended September 30, 2008 and 2007			5
Notes to Unaudited Consolidated Financial Statements			7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3 Quantitative and Qualitative Disclosures About Market Risk			42
Item 4 Controls and Procedures			44
PART II OTHER INFORMATION
Item 1 Legal Proceedings			44
Item 1A Risk Factors			44
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3 Defaults Upon Senior Securities			44
Item 4 Submission of Matters to a Vote of Security Holders			44
Item 5 Other Information			44
Item 6 Exhibits			45
Signatures			46
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

CELGENE CORPORATION AND SUBSIDIARIES

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenue:
Net product sales		$	567,017			$	331,169			$	1,541,556			$	919,910
Collaborative agreements and other revenue			2,402				4,616				9,960				14,520
Royalty revenue			23,046				14,123				75,011				56,800
Total revenue			592,465				349,908				1,626,527				991,230
Expenses:
Cost of goods sold (excluding amortization expense)			70,534				34,066				190,452				84,840
Research and development			160,911				130,841				462,650				301,341
Selling, general and administrative			168,607				94,736				485,345				310,669
Amortization of acquired intangible assets			32,833				2,290				77,842				6,755
Acquired in-process research and development			—				—				1,740,000				—
Total expenses			432,885				261,933				2,956,289				703,605
Operating income (loss)			159,580				87,975				(1,329,762	)			287,625
Other income and expense:
Interest and investment income, net			19,678				28,296				69,281				79,447
Equity in losses of affiliated companies			2,338				1,106				8,761				3,338
Interest expense			512				2,614				3,968				7,913
Other income (expense), net			2,464				732				4,957				(3,345	)
Income (loss) before income taxes			178,872				113,283				(1,268,253	)			352,476
Income tax provision			42,058				74,450				116,138				201,364
Net income (loss)		$	136,814			$	38,833			$	(1,384,391	)		$	151,112
Net income (loss) per common share:
Basic		$	0.30			$	0.10			$	(3.17	)		$	0.40
Diluted		$	0.29			$	0.09			$	(3.17	)		$	0.36
Weighted average shares:
Basic			456,509				383,774				437,206				380,841
Diluted			468,891				432,817				437,206				431,208

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES

		September 30,				December 31,
		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	1,517,120			$	1,218,273
Marketable securities available for sale			937,050				1,520,645
Accounts receivable, net of allowances of $7,927 and $4,213 at September 30, 2008 and December 31, 2007, respectively			275,409				167,252
Inventory			90,344				49,076
Deferred income taxes			59,808				20,506
Other current assets			144,483				108,669
Total current assets			3,024,214				3,084,421
Property, plant and equipment, net			234,414				197,428
Investment in affiliated companies			18,245				14,422
Intangible assets, net			462,235				92,658
Goodwill			523,617				39,033
Other assets			94,699				183,322
Total assets		$	4,357,424			$	3,611,284
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	54,938			$	37,876
Accrued expenses			329,678				159,220
Income taxes payable			15,541				4,989
Convertible notes			—				196,555
Current portion of deferred revenue			1,365				7,666
Other current liabilities			47,488				26,625
Total current liabilities			449,010				432,931
Deferred revenue, net of current portion			3,095				60,303
Non-current income taxes payable			257,068				211,307
Other non-current liabilities			59,890				62,799
Total liabilities			769,063				767,340
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, $.01 par value per share, 5,000,000 shares authorized; none outstanding at September 30, 2008 and December 31, 2007, respectively			—				—
Common stock, $.01 par value per share, 575,000,000 shares authorized; issued 462,213,553 and 407,150,694 shares at September 30, 2008 and December 31, 2007, respectively			4,622				4,072
Common stock in treasury, at cost; 4,092,612 and 4,026,116 shares at September 30, 2008 and December 31, 2007, respectively			(153,769	)			(149,519	)
Additional paid-in capital			5,035,170				2,780,849
(Accumulated deficit) retained earnings			(1,259,731	)			124,660
Accumulated other comprehensive (loss) income			(37,931	)			83,882
Total stockholders’ equity			3,588,361				2,843,944
Total liabilities and stockholders’ equity		$	4,357,424			$	3,611,284

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES

		Nine-Month Periods Ended
		September 30,
		2008				2007
Cash flows from operating activities:
Net (loss) income		$	(1,384,391	)		$	151,112
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation of long-term assets			25,470				15,455
Amortization of intangible assets			78,138				7,047
Provision for accounts receivable allowances			6,642				6,353
Deferred income taxes			(9,770	)			(4,334	)
Acquired in-process research and development			1,740,000				—
Share-based compensation expense			75,650				41,630
Equity in losses of affiliated companies			8,362				2,910
Share-based employee benefit plan expense			7,358				6,436
Other, net			12,434				1,526
Change in current assets and liabilities, excluding the effect of acquisition:
Accounts receivable			(70,740	)			(23,148	)
Inventory			(5,799	)			(34,480	)
Other operating assets			(12,359	)			(11,088	)
Accounts payable and other operating liabilities			(20,708	)			61,162
Income tax payable			26,088				93,085
Deferred revenue			(31	)			(2,733	)
Net cash provided by operating activities			476,344				310,933
Cash flows from investing activities:
Proceeds from sales of marketable securities available for sale			981,502				1,462,836
Purchases of marketable securities available for sale			(471,699	)			(2,362,302	)
Payments for acquisition of business, net of cash acquired			(746,779	)			—
Capital expenditures			(53,635	)			(38,447	)
Investment in affiliated companies			(12,185	)			(1,621	)
Purchases of investment securities			(8,236	)			(23,356	)
Other			11,528				—
Net cash used in investing activities			(299,504	)			(962,890	)
Cash flows from financing activities:
Net proceeds from exercise of common stock options and warrants			106,932				136,033
Excess tax benefit from share-based compensation arrangements			59,459				112,614
Net cash provided by financing activities			166,391				248,647
Effect of currency rate changes on cash and cash equivalents			(44,384	)			4,630
Net increase (decrease) in cash and cash equivalents		$	298,847			$	(398,680	)
Cash and cash equivalents at beginning of period		$	1,218,273			$	1,439,415
Cash and cash equivalents at end of period		$	1,517,120			$	1,040,735

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Unaudited)
(Dollars in thousands)

		Nine-Month Periods Ended
		September 30,
		2008				2007
Supplemental schedule of non-cash investing and financing activity:
Change in net unrealized loss on marketable securities available for sale and cash flow hedges		$	100,527			$	43,988
Matured shares tendered in connection with stock option exercises		$	(4,250	)		$	(6,457	)
Conversion of convertible notes		$	196,543			$	130
Supplemental disclosure of cash flow information:
Interest paid		$	1,640			$	5,250
Income taxes paid		$	28,084			$	—

See accompanying Notes to Unaudited Consolidated Financial Statements

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business and Basis of Presentation: Celgene Corporation and its subsidiaries (collectively “Celgene” or the “Company”) is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory diseases. On March 7, 2008, the Company acquired all of the outstanding common stock and stock options of Pharmion Corporation, or Pharmion, which prior to the acquisition was a global biopharmaceutical company that acquired, developed and commercialized innovative products for the treatment of hematology and oncology patients, for $2.67 billion in a combination of cash and Celgene common stock. The Company’s commercial stage products include REVLIMID^®, THALOMID^® / Thalidomide, VIDAZA^®, ALKERAN^® and FOCALIN^®. FOCALIN^® is sold exclusively to Novartis Pharma AG, or Novartis. The Company also derives revenues from a licensing agreement with Novartis, which entitles it to royalties on FOCALIN XR^® and the entire RITALIN^® family of drugs, and sales of bio-therapeutic products and services through the Company’s Cellular Therapeutics subsidiary.

The accompanying unaudited consolidated financial statements have been prepared from the books and records of the Company pursuant to U.S. generally accepted accounting principles for interim information and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in complete annual financial statements have been condensed or omitted. The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated. Investments in limited partnerships and interests in which the Company has an equity interest of 50% or less and does not otherwise have a controlling financial interest are accounted for by either the equity or cost method. Certain immaterial reclassifications have been made to the prior period consolidated financial statements in order to conform to the current period presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The Company is subject to certain risks and uncertainties related to product development, regulatory approval, market acceptance, scope of patent and proprietary rights, intense competition, rapid technological change and product liability.

Interim results may not be indicative of the results that may be expected for the full year. In the opinion of management, these financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim consolidated financial statements.

Recent Accounting Principles: In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 157, “Fair Value Measurements,” or SFAS 157, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. The FASB partially deferred the effective date of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. The effective date for financial assets and liabilities that are recognized on a recurring basis was January 1, 2008. The Company has determined that its adoption of SFAS 157 on January 1, 2008 for financial assets and liabilities did not have a material impact on its consolidated financial statements. See Note 6 for expanded disclosures required by SFAS 157. The Company is currently evaluating the impact that the adoption of SFAS 157 related to non-financial assets will have, if any, on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” or SFAS 159, which provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and highlights the effect of a company’s choice to use fair value on its earnings. It also requires a company to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the balance sheet. SFAS 159 was effective for the Company beginning January 1, 2008 and did not have a material impact on its consolidated financial statements.

In June 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue No. 07-3, “Accounting for Non-Refundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities,” or EITF 07-3, which provides that non-refundable advance payments for future research and development activities should be deferred and capitalized until the related goods are delivered or the related services are performed. EITF 07-3 was effective for the Company on a prospective basis beginning January 1, 2008 and did not have a material impact on its consolidated financial statements.

In December 2007, the FASB ratified EITF Issue No. 07-1, “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property,” or EITF 07-1, which provides guidance on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure requirements. EITF 07-1 will be effective for the Company beginning January 1, 2009 on a retrospective basis. The Company is currently evaluating the impact that the adoption of EITF 07-1 will have, if any, on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” or SFAS 141R, which replaces FASB Statement No. 141, “Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. It is effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51,” or SFAS 160, which changes the accounting for and reporting of noncontrolling interests (formerly known as minority interests) in consolidated financial statements. SFAS 160 is effective January 1, 2009. Upon implementation, prior periods will be recast for the changes required by SFAS 160. The Company is currently evaluating the impact that the adoption of SFAS 160 will have, if any, on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” or SFAS 161, which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating the impact that the adoption of SFAS 161 will have, if any, on its consolidated financial statements.

In May 2008, the FASB issued FASB Staff Position, or FSP, No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” or FSP APB 14-1, which requires separate accounting for the debt and equity components of convertible debt issuances that have a cash settlement feature permitting settlement partially or fully in cash upon conversion.

A component of such debt issuances representative of the approximate fair value of the conversion feature at inception should be bifurcated and recorded to equity, with the resulting debt discount amortized to interest expense in a manner that reflects the issuer’s nonconvertible, unsecured debt borrowing rate. The requirements for separate accounting must be applied retrospectively to previously issued convertible debt issuances as well as prospectively to newly issued convertible debt issuances, negatively affecting both net income and earnings per share, in financial statements issued for fiscal years beginning after December 15, 2008. Since the Company’s past convertible debt issuance did not include a cash settlement feature, it does not expect the adoption of FSP APB 14-1 will have any impact on its consolidated financial statements.

In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” or FSP EITF 03-6-1. The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share.” The FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. The FSP is effective for fiscal years beginning after December 15, 2008; earlier application is not permitted. Since the Company’s past share-based payment awards did not include non-forfeitable rights to dividends or dividend equivalents, it does not expect the adoption of FSP EITF 03-6-1 will have any impact on its consolidated financial statements.

Significant Accounting Policies: The Company’s significant accounting policies are described in Note 1 of the Notes to the Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2007. In addition, the following additional significant accounting policy is now applicable:

Derivatives and Hedging Activities: SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS 133, as amended, requires that all derivative instruments be recognized on the balance sheet at their fair value. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income (loss), depending on whether a derivative instrument is designated as part of a hedging transaction and, if it is, the type of hedging transaction. For a derivative to qualify as a hedge at inception and throughout the hedged period, the Company formally documents the nature and relationships between the hedging instruments and hedged item. The Company assesses, both at inception and on an on-going basis, whether the derivative instruments that are used in cash flow hedging transactions are highly effective in offsetting the changes in cash flows of hedged items. The Company assesses hedge ineffectiveness on a quarterly basis and records the gain or loss related to the ineffective portion of derivative instruments, if any, to current earnings. If the Company determines that a forecasted transaction is no longer probable of occurring, it discontinues hedge accounting and any related unrealized gain or loss on the derivative instrument is recognized in current earnings. The Company uses derivative instruments, including those not designated as part of a hedging transaction, to manage its exposure to movements in foreign exchange rates. The use of these derivative instruments modifies the exposure of these risks with the intent to reduce the risk or cost to the Company. The Company does not use derivative instruments for speculative trading purposes and is not a party to leveraged derivatives.

2. Acquisition of Pharmion Corporation

On March 7, 2008, Celgene acquired all of the outstanding common stock and stock options of Pharmion in a transaction accounted for under the purchase method of accounting for business combinations. Under the purchase method of accounting, the assets acquired and liabilities assumed of Pharmion are recorded as of the acquisition date, at their respective fair values, and consolidated with those of Celgene. The reported consolidated financial condition and results of operations of Celgene after completion of the acquisition reflect these fair values. The operating results of Pharmion are included in the Company’s consolidated financial statements from the date of acquisition.

Celgene paid a total purchase price of $2.761 billion to acquire all of the outstanding Pharmion common shares and stock options. Each Pharmion share of common stock (other than shares owned by Celgene or its wholly owned subsidiaries, held in Pharmion’s treasury or to which appraisal rights were perfected) were converted into the right to receive (i) 0.8367 shares of common stock of Celgene and (ii) $25.00 in cash. The combination of cash and Celgene stock paid to Pharmion stockholders consisted of $921.0 million in cash and approximately 30.8 million shares of Celgene common stock valued at $1.749 billion. The purchase price included acquisition-related costs of $26.2 million, the fair value of vested Celgene stock options issued of $44.9 million and the cost of Celgene’s investment in Pharmion common shares prior to the acquisition.

Prior to the acquisition, Pharmion was a global biopharmaceutical company that acquired, developed and commercialized innovative products for the treatment of hematology and oncology patients. Celgene acquired Pharmion to enhance its portfolio of therapies for patients with life-threatening illnesses worldwide with the addition of Pharmion’s marketed products, and several products in development for the treatment of hematological and solid tumor cancers. By combining this new product portfolio with Celgene’s existing operational and financial capabilities, Celgene expects to enlarge its global market share through increased product offerings and expanded clinical, regulatory and commercial capabilities.

(Amounts in thousands)
Purchase Price Summary:
Stock issued at fair value		$	1,749,222
Cash paid			920,805
Acquisition-related costs			26,187
Fully vested stock options issued			44,924
Pharmion shares previously owned			20,212
Total purchase price paid		$	2,761,350

The acquisition was accounted for using the purchase method of accounting for business combinations and the preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the acquisition date based upon their respective fair values.

(Amounts in thousands)		March 7, 2008
Current assets		$	340,415
Property, plant and equipment			8,404
Developed product rights			510,986
In-process research and development			1,740,000
Other noncurrent assets			304
Assets acquired			2,600,109
Restructuring			(69,000	)
Net deferred taxes			(128,352	)
Liabilities assumed			(141,748	)
Net assets acquired			2,261,009
Goodwill			500,341
Acquisition cost		$	2,761,350

The fair value of the acquired identifiable intangible assets consists primarily of developed product rights for the following marketed products at date of acquisition: VIDAZA^® IV in the U.S. market, Thalidomide Pharmion in certain foreign markets and other minor commercialized products. The weighted average amortization period for these assets, in total, is 6.5 years. The weighted average amortization period for compassionate use rights is 1.2 years, while the weighted average amortization period for the developed product rights is 7.1 years.

In-process research and development, or IPR&D, represents compounds under development by Pharmion at the date of acquisition that had not yet achieved regulatory approval for marketing in certain markets or had not yet been completed and have no alternative future use. The $1.74 billion estimated fair value of these intangibles was derived using the multi-period excess-earnings method, a form of the income approach. The IPR&D primarily related to development and approval initiatives for VIDAZA^® IV in the E.U. market, the oral form of azacitidine in the U.S. and E.U. markets and Thalidomide Pharmion^® in the E.U. market. The projected cash flows for valuation purposes were based on key assumptions such as estimates of revenues and operating profits related to the programs considering their stages of development; the time and resources needed to complete the regulatory approval process for the products; and the life of the potential commercialized products and associated risks, including the inherent difficulties and uncertainties in obtaining regulatory approvals.

For VIDAZA^® IV in the E.U. market, the related future net cash flows were estimated using a risk-adjusted discount rate of 10.0% and an anticipated regulatory approval date in late 2008 with market exclusivity rights expected to continue through 2019. For the oral form of azacitidine in the United States and European Union, the future net cash flows were estimated using a risk-adjusted discount rate of 11.0% for each market. The anticipated regulatory approval in the European Union was assumed for 2013 with exclusivity continuing through 2023, and the anticipated regulatory approval in the United States was assumed for 2013 with exclusivity continuing through 2018. For Thalidomide Pharmion^® in the E.U. market, the future net cash flows were estimated using a risk-adjusted discount rate of 9.5% and an anticipated regulatory approval date in 2008 with exclusivity continuing through 2018.

In accordance with FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method,” the purchase price allocated to IPR&D intangible assets has been expensed to income immediately subsequent to the acquisition because the compounds do not have any alternative future use. This charge is not deductible for tax purposes.

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The amount allocated to goodwill is preliminary and subject to change, depending on the results of the final purchase price allocation. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the Company’s acquisition of Pharmion has been recorded as a noncurrent asset in the Company’s Consolidated Balance Sheet and will not be amortized, but is subject to review for impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

The allocation of the purchase price is subject to finalization of Celgene’s management analysis of the fair value of the assets acquired and liabilities assumed of Pharmion as of the acquisition date. The final allocation of the purchase price may result in additional adjustments to the recorded amounts of assets and liabilities, including goodwill, deferred taxes, accruals for restructuring activities (see Note 3 below) and other tax liabilities, which may also result in adjustments to depreciation and amortization charges. Celgene’s management is continuing to evaluate the purchase price allocation, including acquired uncertain tax positions, and expects the final allocation to be completed during the fourth quarter ending December 31, 2008. Some of the acquired uncertain tax positions are complex and can be significant, but at this time there is not sufficient information to conclude on this matter.

Prior to the acquisition, Celgene had licensed exclusive rights relating to the development and commercial use for thalidomide and its distribution system to Pharmion, and also maintained a thalidomide supply agreement with Pharmion. The Company accounted for these arrangements in accordance with EITF Issue No. 04-1, “Accounting for Preexisting Relationships between the Parties to a Business Combination.” In addition, the Company has valued the reacquired thalidomide-related rights in the valuation of developed product rights described above. Any assets and liabilities that existed between Celgene and Pharmion as of the acquisition date have been eliminated in the accompanying unaudited consolidated financial statements.

The following table provides unaudited pro forma financial information for the three- and nine-month periods ended September 30, 2008 and 2007 as if the acquisition had occurred as of the beginning of each year presented. For each year presented, the unaudited pro forma results include the nonrecurring charge for IPR&D, amortization of acquired intangible assets, elimination of expense and income related to pre-acquisition agreements with Pharmion, reduced interest and investment income attributable to cash paid for the acquisition and the amortization of the inventory step-up to fair value of acquired Pharmion product inventories. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the combined operations of Celgene and Pharmion. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
(Amounts in thousands, except per share)		2008				2007				2008				2007
Total revenue		$	592,465			$	411,701			$	1,678,880			$	1,169,833
Net income (loss)		$	136,814			$	(12,117	)		$	(1,393,846	)		$	(1,735,031	)
Net income (loss) per common share:
Basic		$	0.30			$	(0.03	)		$	(3.19	)		$	(4.23	)
Diluted		$	0.29			$	(0.03	)		$	(3.19	)		$	(4.23	)

3. Restructuring

The acquisition cost of Pharmion includes liabilities related primarily to the planned exit of certain business activities, involuntary terminations and the relocation of certain Pharmion employees. The cost of these restructuring activities is estimated to be approximately $69.0 million, which includes employee severance costs of $16.8 million, early lease and contract termination costs of $45.0 million, facility closing costs of $3.8 million and various other costs of approximately $3.4 million primarily associated with exiting certain business activities of Pharmion. The Company expects that all actions will be substantially completed within one year of the effective date of the acquisition.

Payments related to the restructuring charge were $13,788 and $25,376 for the three- and nine-month periods ended September 30, 2008, respectively.

The following table summarizes the changes to the restructuring reserves established as part of the Pharmion acquisition on March 7, 2008 for the nine-month period ended September 30, 2008.

		Balance								Balance
(Amounts in thousands)		March 7, 2008				Payments				Septmeber 30, 2008
Severance costs		$	16,800			$	(13,753	)		$	3,047
Contract termination fees			45,000				(6,758	)			38,242
Facility closing costs			3,800				(2,931	)			869
Other			3,400				(1,934	)			1,466
Total restructuring costs		$	69,000			$	(25,376	)		$	43,624

4. Earnings Per Share (EPS)

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income adjusted to add back the after-tax amount of interest recognized in the period associated with any convertible debt issuance that may be dilutive by the weighted-average number of common shares outstanding during the period increased to include all additional common shares that would have been outstanding as if the outstanding convertible debt was converted into shares of common stock and assuming potentially dilutive common shares, resulting from option exercises, had been issued and any proceeds thereof used to repurchase common stock at the average market price during the period. The assumed proceeds used to repurchase common stock are the sum of the amount to be paid to the Company upon exercise of options, the amount of compensation cost attributed to future services and not yet recognized and, if applicable, the amount of excess income tax benefit that would be credited to paid-in capital upon exercise.

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
(Amounts in thousands except per share)		2008				2007				2008				2007
Net income (loss)		$	136,814			$	38,833			$	(1,384,391	)		$	151,112
Interest expense on convertible debt, net of tax			—				1,392				—				4,177
Net income (loss) for diluted computation		$	136,814			$	40,225			$	(1,384,391	)		$	155,289
Weighted average shares:
Basic			456,509				383,774				437,206				380,841
Effect of dilutive securities:
Options, warrants and other incentives			12,382				16,042				—				17,366
Convertible debt			—				33,001				—				33,001
Diluted			468,891				432,817				437,206				431,208
Net income (loss) per share:
Basic		$	0.30			$	0.10			$	(3.17	)		$	0.40
Diluted		$	0.29			$	0.09			$	(3.17	)		$	0.36

The total number of potential common shares excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 9,392,013 and 4,855,003 shares for the three-month periods ended September 30, 2008 and 2007, respectively. The total number of potential common shares excluded from the computation for the nine-month periods ended September 30, 2008 and 2007 was 33,014,354 and 5,464,407, respectively. All of the potentially dilutive securities for the nine-month period ended September 30, 2008 were determined to be anti-dilutive due to the net loss reported. Substantially all of the convertible debt was converted into shares of common stock by its maturity date of June 1, 2008, with the balance paid in cash.

5. Comprehensive Income (Loss)

The components of comprehensive income (loss) consist of net income (loss), the after-tax effects of changes in net unrealized gains (losses) on marketable securities classified as available for sale, net unrealized gains and (losses) related to cash flow hedges and changes in currency translation adjustments. A summary of comprehensive income (loss) for the three- and nine-month periods ended September 30, 2008 and 2007 follows:

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
(Amounts in thousands)		2008				2007				2008				2007
Net income (loss)		$	136,814			$	38,833			$	(1,384,391	)		$	151,112
Other comprehensive (loss) income:
Net unrealized (losses) gains on marketable securities available for sale, net of tax			(4,052	)			24,981				(3,947	)			24,278
Reversal of unrealized gains on Pharmion investment, net of tax			—				—				(62,806	)			—
Reclassification adjustment for losses included in net income (loss)			3,515				2,639				1,275				4,085
Total other comprehensive (losses) gains related to marketable securities available for sale, net of tax			(537	)			27,620				(65,478	)			28,363
Net unrealized gains related to cash flow hedges, net of tax			6,786				—				6,786				—
Currency translation adjustments			(91,299	)			9,908				(63,120	)			15,803
Total other comprehensive (loss) income			(85,050	)			37,528				(121,812	)			44,166
Comprehensive income (loss)		$	51,764			$	76,361			$	(1,506,203	)		$	195,278

6. Financial Instruments and Fair Value Measurement

The table below presents information about assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2008 and the valuation techniques the Company utilized to determine such fair value. In general, fair values determined based on Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of marketable equity securities. Fair values determined based on Level 2 inputs utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices from identical or similar assets in markets that are not very active. The Company’s Level 2 assets consist of mortgage-backed obligations, U.S. Treasury securities, U.S. government-sponsored agency securities, corporate debt securities, forward currency contracts and warrants to purchase equity securities. Fair values determined based on Level 3 inputs utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity. The Company’s Level 3 assets consist of a private cash fund with a carrying value calculated pursuant to the amortized cost method, which values each investment at its acquisition cost as adjusted for amortization of premium or accumulation of discount over the investment’s remaining life, net of impairment.

						Quoted Price in				Significant				Significant
						Active Markets for				Other Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
(Amounts in thousands)		September 30, 2008				(Level 1)				(Level 2)				(Level 3)
Cash equivalents		$	69,027			$	—			$	69,027			$	—
Available-for-sale securities			937,050				661				921,788				14,601
Forward currency contracts			(3,379	)			—				(3,379	)			—
		$	1,002,698			$	661			$	987,436			$	14,601

The following table is a roll-forward of the fair value of the private cash fund, determined by Level 3 inputs:

		Fair Value
		Measurements
		Using Significant
(Amounts in thousands)		Unobservable Inputs
Balance at December 31, 2007		$	37,038
Total gains or losses (realized and unrealized)			—
Settlements			(22,437	)
Transfers in and/or out of Level 3			—
Balance at September 30, 2008		$	14,601

Foreign Currency Forward Contracts: The Company uses foreign currency forward contracts to hedge specific forecasted intercompany transactions denominated in foreign currencies and to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.

The Company enters into foreign currency forward contracts to protect against possible changes in values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with U.S. dollar denominated expenses incurred by subsidiaries in Europe. These foreign currency forward contracts are designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on them are reported in other comprehensive income (loss) and reclassified to earnings in the same periods during which the underlying hedged transactions affect earnings. Any ineffectiveness on these foreign currency forward contracts is reported in other income (expense), net.

The foreign currency forward hedging contracts outstanding at September 30, 2008 had an aggregate notional amount of approximately $75.7 million and had settlement dates within twelve months. The fair value of these contracts was $8.4 million and was included in other current assets at September 30, 2008, including gains, net of tax, of $6.8 million included in other comprehensive income (loss).

Hedge ineffectiveness for the three- and nine-month periods ended September 30, 2008 and 2007 was insignificant. Time value excluded from the hedge effectiveness assessment for the three- and nine-month periods ended September 30, 2008 was $0.9 million as compared to zero for the three- and nine-month periods ended September 30, 2007 and was included in other income (expense), net.

The Company also enters into foreign currency forward contracts to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. These foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized in other income (expense), net in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at September 30, 2008 was approximately $366.9 million. The fair value of these contracts was $11.7 million and was included in accrued expenses at September 30, 2008.

7. Cash, Cash Equivalents and Marketable Securities Available for Sale

Money market funds and marketable securities classified as cash equivalents of $1.270 billion and $1.006 billion at September 30, 2008 and December 31, 2007, respectively, were recorded at cost, which approximates fair value and are included in cash and cash equivalents. The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value of available-for-sale securities by major security type and class of security at September 30, 2008 and December 31, 2007 were as follows:

						Gross				Gross				Estimated
(Amounts in thousands)		Amortized				Unrealized				Unrealized				Fair
September 30, 2008		Cost				Gain				Loss				Value
Mortgage-backed obligations		$	174,052			$	2,090			$	(230	)		$	175,912
U.S. Treasury securities			176,250				2,839				(223	)			178,866
U.S. government-sponsored agency securities			563,127				4,397				(514	)			567,010
Private cash fund shares			14,601				—				—				14,601
Marketable equity securities			661				—				—				661
Total available-for-sale marketable securities		$	928,691			$	9,326			$	(967	)		$	937,050

						Gross				Gross				Estimated
(Amounts in thousands)		Amortized				Unrealized				Unrealized				Fair
December 31, 2007		Cost				Gain				Loss				Value
Mortgage-backed obligations		$	216,255			$	2,253			$	(108	)		$	218,400
U.S. Treasury securities			150,175				1,410				(28	)			151,557
U.S. government-sponsored agency securities			969,312				10,690				(131	)			979,871
Corporate debt securities			13,448				19				(1,611	)			11,856
Private cash fund shares			37,038				—				—				37,038
Marketable equity securities			20,212				101,711				—				121,923
Total available-for-sale marketable securities		$	1,406,440			$	116,083			$	(1,878	)		$	1,520,645

Mortgage-backed obligations include fixed rate asset-backed securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. U.S. government-sponsored agency securities include general unsecured obligations of the issuing agency. Private cash fund shares are investments in enhanced cash commingled funds. Marketable equity securities at December 31, 2007 consisted of the Company’s investment in the common shares of Pharmion, which were subsequently eliminated with the acquisition of Pharmion in March 2008. Net unrealized gains in mortgage-backed obligations, U.S. Treasury securities and U.S. government-sponsored agency securities primarily reflect the impact of decreased interest rates at September 30, 2008 and December 31, 2007. Unrealized losses related to corporate debt securities at December 31, 2007 were primarily due to widening credit spreads.

Duration of debt securities classified as available-for-sale at September 30, 2008 was as follows:

		Amortized				Fair
(Amounts in thousands)		Cost				Value
Duration of one year or less		$	363,348			$	365,813
Duration of one through three years			467,899				472,681
Duration of three through five years			76,962				77,463
Duration of five years or more			19,821				20,432
Total		$	928,030			$	936,389

8. Inventory

A summary of inventories by major category at September 30, 2008 and December 31, 2007 follows:

		September 30,				December 31,
(Amounts in thousands)		2008				2007
Raw materials		$	16,028			$	8,899
Work in process			25,371				21,214
Finished goods			48,945				18,963
Total		$	90,344			$	49,076

Inventory at September 30, 2008 increased $41.3 million compared to December 31, 2007 primarily as a result of the Pharmion acquisition in addition to an increase in the inventory levels of all other products.

9. Investment in Affiliated Companies

A summary of the Company’s equity investment in affiliated companies follows:

(Amounts in thousands)		September 30,				December 31,
Investment in Affiliated Companies		2008				2007
Investment in affiliated companies (1)		$	14,410			$	2,191
Excess of investment over share of equity (2)			3,835				12,231
Investment in affiliated companies		$	18,245			$	14,422

		Three-Month Periods Ended								Nine-Month Periods Ended
(Amounts in thousands)		September 30,								September 30,
Equity in Losses of Affiliated Companies		2008				2007				2008				2007
Affiliated companies losses (1)		$	2,338			$	1,031			$	8,761			$	3,112
Amortization of intangibles			—				75				—				226
Equity in losses of affiliated companies		$	2,338			$	1,106			$	8,761			$	3,338

The investment in affiliated companies includes additional equity investments totaling $12.2 million for the nine-month period ended September 30, 2008. The three- and nine-month periods ended September 30, 2008 included other-than-temporary impairment losses of $1.6 million and $6.0 million, respectively. These impairment losses were based on an evaluation of several factors, including a decrease in fair value of the equity investment below its cost.

10. Convertible Debt

In June 2003, the Company issued an aggregate principal amount of $400.0 million of unsecured convertible notes due June 2008, referred to herein as the convertible notes. The convertible notes had a five-year term and a coupon rate of 1.75% payable semi-annually on June 1 and December 1. Each $1,000 principal amount of convertible notes was convertible into 82.5592 shares of common stock as adjusted, or a conversion price of $12.1125 per share, which represented a 50% premium to the closing price on May 28, 2003 of the Company’s common stock of $8.075 per share, after adjusting prices for the two-for-one stock splits effected on February 17, 2006 and October 22, 2004. As of their maturity date, June 1, 2008, pursuant to the terms of the indenture, as amended, governing the convertible notes, substantially all of the convertible notes were converted into an aggregate 33,022,740 shares of common stock at the conversion price, with the balance paid in cash.

11. Intangible Assets and Goodwill

Intangible Assets: A summary of intangible assets by category follows:

		Gross								Intangible				Weighted
(Amounts in thousands)		Carrying				Accumulated				Assets,				Average
September 30, 2008		Value				Amortization				Net				Life (Years)
Acquired developed product rights		$	534,593			$	(76,205	)		$	458,388				6.5
License			4,250				(845	)			3,405				13.8
Technology			292				(53	)			239				12.6
Acquired workforce			321				(118	)			203				5.0
Total		$	539,456			$	(77,221	)		$	462,235				6.5

		Gross								Intangible				Weighted
(Amounts in thousands)		Carrying				Accumulated				Assets,				Average
December 31, 2007		Value				Amortization				Net				Life (Years)
Penn T supply agreements		$	109,982			$	(21,470	)		$	88,512				12.9
License			4,250				(614	)			3,636				13.8
Technology			297				(36	)			261				12.6
Acquired workforce			318				(69	)			249				5.0
Total		$	114,847			$	(22,189	)		$	92,658				12.9

The gross carrying value of intangibles increased by $424.6 million from December 31, 2007 to September 30, 2008, primarily due to the fair value assigned to pharmaceutical product rights obtained as part of the Pharmion acquisition in March 2008. An immaterial amount of decrease in gross carrying value of intangibles was due to changes in foreign exchange rates.

Amortization of intangible assets was $32.9 million and $2.4 million for the three-month periods ended September 30, 2008 and 2007, respectively. Amortization for the nine-month periods ended September 30, 2008 and 2007 was $78.1 million and $7.1 million, respectively. The increase in amortization expense was due to amortization of the intangible assets resulting from the Pharmion acquisition. Assuming no changes in the gross carrying amount of intangible assets, the amortization of intangible assets for the next five years is estimated to be approximately $101.8 million for the year ending December 31, 2008, approximately $84.8 million for the year ending December 31, 2009 and approximately $64.4 million for each of the years ending December 31, 2010 through 2012.

Goodwill: At September 30, 2008, the Company’s goodwill related to the March 7, 2008 acquisition of Pharmion and the October 21, 2004 acquisition of Penn T Limited. The final allocation of the Pharmion purchase price may result in an adjustment to the recorded amount of goodwill and is expected to be completed during the fourth quarter ending December 31, 2008. The change in carrying value of goodwill is summarized as follows:

(Amounts in thousands)
Balance, December 31, 2007		$	39,033
Acquisition of Pharmion			500,341
Tax benefit on the exercise of Pharmion converted stock options			(11,528	)
Translation			(4,229	)
Balance, September 30, 2008		$	523,617

12. Share-Based Compensation

On June 18, 2008, the Company’s stockholders approved an amendment and restatement of the 1998 Incentive Plan, or the Plan, which included the following key modifications: adoption of an aggregate share reserve of 52,372,191 shares of Common Stock (which number reflects 11,844,865 shares of Common Stock expiring under the Plan and 10,155,135 new shares of Common Stock, plus 30,372,191 shares underlying outstanding awards previously granted under the Plan as of March 19, 2008); extension of the term of the Plan through April 16, 2018; addition of the authority to grant other stock-based awards, including restricted stock units, under the Plan; and renaming the Plan as the 2008 Stock Incentive Plan.

The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three- and nine-month periods ended September 30, 2008 and 2007:

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
(Amounts in thousands)		2008				2007				2008				2007
Cost of good sold		$	668			$	582			$	1,829			$	1,378
Research and development			10,964				5,220				32,264				11,165
Selling, general and administrative			16,596				9,274				41,557				24,281
Other expense, net			—				—				—				4,806
Total share-based compensation expense		$	28,228			$	15,076			$	75,650			$	41,630

Share-based compensation cost included in inventory was $0.7 million at September 30, 2008 and $0.4 million at December 31, 2007.

As of September 30, 2008, there was $255.7 million of unrecognized compensation expense related to the Company’s various stock-based plans. These costs will be recognized over an expected remaining weighted-average period of 2.5 years.

The weighted-average grant date fair value of the stock options issued during the three-month periods ended September 30, 2008 and 2007 was $27.89 per share and $23.55 per share, respectively. The weighted-average grant date fair value of the stock options issued during the nine-month periods ended September 30, 2008 and 2007 was $25.71 per share and $23.09 per share, respectively. There have been no significant changes to the assumptions used to estimate the fair value of options granted during the nine-month period ended September 30, 2008, as compared to those disclosed for the year ended December 31, 2007 in Note 13 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K.

Stock option transactions for the nine-month period ended September 30, 2008 under all plans are as follows:

						Weighted				Weighted
						Average				Average				Aggregate
						Exercise				Remaining				Intrinsic
						Price				Contractual				Value
		Options				Per Option				Term (Years)				(In Thousands)
Outstanding at December 31, 2007			32,717,434			$	28.03				6.1			$	702,341
Changes during the period:
Granted			7,007,758
Issued — Pharmion acquisition			1,206,031
Exercised			(7,904,283	)
Forfeited			(468,074	)
Expired			(47,239	)
Outstanding at September 30, 2008			32,511,627			$	38.09				6.5			$	856,677
Vested at September 30, 2008 or expected to vest in the future			31,995,063			$	37.70				6.4			$	854,330
Vested at September 30, 2008			18,595,201			$	23.84				4.7			$	733,840

The total fair value of shares vested during the nine-month periods ended September 30, 2008 and 2007 was $21.3 million and $26.4 million, respectively. The total intrinsic value of stock options exercised during the nine-month periods ended September 30, 2008 and 2007 was $390.3 million and $435.4 million, respectively. The Company primarily utilizes newly issued shares to satisfy the exercise of stock options.

13. Income Taxes

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of those deferred tax assets, by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to it for tax reporting purposes and other relevant factors. Significant judgment is required in making this assessment.

The Company’s tax returns have been audited by the Internal Revenue Service, or IRS, through the year ended December 31, 2003. Tax returns for the years ended December 31, 2004 and 2005 are currently under examination by the IRS. The Company is also subject to audits by various state and foreign taxing authorities, including, but not limited to, most U.S. states, major European and Asian countries.

The Company regularly reevaluates its tax positions and the associated interest and penalties, if applicable, resulting from audits of federal, state and foreign income tax filings, as well as changes in tax law that would reduce or increase the technical merits of the position to below or above more likely than not. The Company believes that its accruals for tax liabilities are adequate for all open years. Many factors are considered in making these evaluations, including past history, recent interpretations of tax law and the specifics of each matter. Because tax regulations are subject to interpretation and tax litigation is inherently uncertain, these evaluations can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. These evaluations are based on estimates and assumptions that have been deemed reasonable by management. However, if management’s estimates are not representative of actual outcomes, the Company’s results of operations could be materially impacted.

Unrecognized tax benefits, represented by liabilities on the balance sheet and subject to audit, arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Virtually all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. Changes to the amount of unrecognized tax benefits from January 1, 2008 relate primarily to current year operations. There are no unrecognized tax benefits as of September 30, 2008 for which it is reasonably possible that there will be a significant change in the next 12 months. The liability for unrecognized tax benefits is expected to increase in the next 12 months relating to operations occurring in that period.

During the nine-month period ended September 30, 2008, the Company’s effective tax rate was negatively impacted by non-deductible in-process research and development charges incurred in connection with the acquisition of Pharmion.

During the nine-month period ended September 30, 2007, the Company recorded a deferred tax benefit of approximately $7.0 million, as a result of a research and experimentation tax credit study covering prior years. In addition, the Company generated research and experimentation tax credits of $18.1 million related to stock option compensation for which no deferred tax benefit was recorded at September 30, 2007. Under SFAS No. 123R, “Share-Based Payment,” or SFAS 123R, excess tax benefits related to stock option compensation are recognized in the period in which such benefits are realized through the reduction of income taxes payable. These tax benefits will be recorded as an increase in additional paid-in capital when realized. Also, during the nine-month period ended September 30, 2007, the Company recorded a deferred tax expense of approximately $4.0 million to adjust deferred tax assets and liabilities for the effect of changes in state and foreign tax rates.

14. Commitments and contingencies

The Company has entered into certain research and development collaboration arrangements with third parties that include the funding of certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments upon the achievement of pre-established developmental, regulatory, and /or commercial targets. The Company’s obligation to fund these efforts is contingent upon continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs. Due to the nature of these arrangements, the future potential payments are inherently uncertain, and accordingly no amounts have been recorded on our Consolidated Balance Sheets.

Associated with the Pharmion acquisition, the Company assumed several agreements that contain future contractual obligations. A summary of these future commitments is provided below:

Inventory Purchase Commitments. Pharmion entered into product supply contracts under which the Company provides its suppliers with rolling 12-24 month supply forecasts, with the initial 3-6 month periods representing binding purchase commitments. These commitments totaled $13.9 million at September 30, 2008.

Research and Development. In December 2005, Pharmion entered into a co-development and licensing agreement for satraplatin with GPC Biotech. Pursuant to the agreement, as assumed, the Company was required to provide up to $22.2 million for future development costs. In July 2008, the Company notified the European Medicines Agency, or EMEA, of its decision to withdraw its application for Marketing Authorization of ORPLATNA^®, or satraplatin, 10 mg and 50 mg capsules intended for use in combination with prednisone, or prednisolone, in the treatment of patients with metastatic hormone-refractory prostate cancer, or HRPC, who have failed prior chemotherapy. This withdrawal was based on the position taken by the EMEA’s Committee for Medicinal Products for Human Use that the data provided do not allow them to conclude a positive benefit-risk balance for ORPLATNA^® for the treatment of patients with metastatic HRPC who have failed prior chemotherapy. In August 2008, the Company notified GPC Biotech of its decision to terminate all of the existing agreements between the parties, including the satraplatin co-development and license agreement. On September 30, 2008, the Company and GPC Biotech executed a termination agreement, with the Company paying GPC Biotech $1.4 million in full satisfaction of its obligations to pay any past or future satraplatin development costs. This contract termination was included in the restructuring reserve established as part of the Pharmion acquisition on March 7, 2008 as a portion of the accrued contract termination costs of $45.0 million.

Contingent Product Acquisition Payments. Pharmion had entered into contractual payment obligations, the amount and timing of which are contingent upon future events. Under a license and collaboration agreement with MethylGene Inc., or MethylGene, milestone payments for MGCD0103 of up to $141.0 million would be payable, based on the achievement of significant development, regulatory and sales goals. Furthermore, up to $100.0 million in additional payments may be due for each additional HDAC inhibitor, based on the achievement of significant development, regulatory and sales milestones. In September 2008, MethylGene exercised its right to convert to a royalty stream and milestone arrangement with the Company for MGCD0103 as provided under the license and collaboration agreement between the companies. As a result, MethylGene, following a 90-day transition period, would no longer be responsible for funding development costs required to obtain market approval for MGCD0103, and the Company would assume all of the program costs for the licensed territories, in addition to the possible milestone payments. The enrollment of new patients into clinical trials evaluating MGCD0103 has been currently suspended. In October 2008, the Company notified MethylGene of its decision to terminate the license and collaboration agreement between the parties, eliminating the potential for future royalty or milestone payments. Following a 90-day transition period, the Company will no longer be responsible for funding development costs required to obtain market approval for MGCD0103.

Under the terms of an agreement with Cabrellis Pharmaceuticals Corporation, the Company will pay $12.5 million for each approval of amrubicin by regulatory authorities in the United States and the European Union. Upon approval of amrubicin for a second indication in the United States or European Union, the Company will pay an additional payment of $10.0 million for each market. Under the terms of the license agreement for amrubicin, the Company is required to make milestone payments of $7.0 million and $1.0 million to Dainippon Sumitomo Pharma Co. Ltd. upon regulatory approval of amrubicin in the United States and the European Union, respectively, and up to $17.5 million upon achieving certain annual sales levels in the United States. In September 2008, amrubicin was granted Fast Track product designation by the U.S. Food and Drug Administration for the treatment of small cell lung cancer after first-line chemotherapy.

15. Subsequent Events

On October 3, 2008 the Company entered into an agreement relating to the June 7, 2001 5-azacytidine license agreement with Pharmacia & Upjohn, now part of Pfizer, Inc., pursuant to which the Company obtained rights for VIDAZA^® as part of the acquisition of Pharmion. Pursuant to the agreement the Company obtained a perpetual, fully paid-up license to the 5-azacytidine technology in exchange for a payment of $425.0 million.

On October 24, 2008 VIDAZA^® received a positive opinion from the EMEA’s Committee for Medicinal Products for Human Use, or CHMP, for the treatment of adult patients who are not eligible for haematopoietic stem cell transplantation with intermediate-2and high-risk MDS according to the International Prognostic Scoring System, chronic myelomonocytic leukemia with 10-29 percent marrow blasts without myeloproliferative disorder and acute myeloid Leukemia with 20-30 percent blasts and multi-lineage dysplasia, according to World Health Organization classification.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements concerning our business, results of operations, economic performance and financial condition based on our current expectations. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those implied by such forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on any forward-looking statements.

Executive Summary

Celgene Corporation and its subsidiaries (collectively “we” or “our”) is a global integrated biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. Our primary commercial stage products are REVLIMID^® (lenalidomide), THALOMID^® / Thalidomide and VIDAZA^® (azacitidine for injection). REVLIMID^® was approved by the U.S. Food and Drug Administration, or FDA, the European Commission, or the EC, the Swiss Agency for Therapeutic Products, or Swissmedic, the Australian Therapeutic Goods Administration, or TGA, and in October 2008 by Health Canada for treatment in combination with dexamethasone for multiple myeloma patients who have received at least one prior therapy. In addition, REVLIMID^® was approved by the FDA and the Canadian Therapeutic Products Directorate for treatment of patients with transfusion-dependent anemia due to low- or intermediate-1-risk myelodysplastic syndromes, or MDS, associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities. We are now launching REVLIMID^® in the European markets and preparing to launch in Canada and Australia. THALOMID^® was approved by the FDA for treatment in combination with dexamethasone for patients with newly diagnosed multiple myeloma and is also approved for the treatment and suppression of cutaneous manifestations of erythema nodosum leprosum, or ENL, an inflammatory complication of leprosy. In April 2008, the TGA approved a supplemental filing granting Thalidomide Pharmion^® marketing approval for use in combination with melphalan and prednisone for patients with untreated multiple myeloma or ineligible for high dose chemotherapy and also granted Thalidomide Pharmion^® marketing approval in combination with dexamethasone for induction therapy prior to high dose chemotherapy with autologous stem cell rescue, for the treatment of patients with untreated multiple myeloma. In addition, in April 2008, Thalidomide Pharmion^® was granted full marketing authorization by the EC for use in combination with melphalan and prednisone as a treatment for patients with newly diagnosed multiple myeloma. VIDAZA^® is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA^® was licensed from Pharmacia & Upjohn, now part of Pfizer, Inc., and was approved by the FDA for the treatment of all subtypes of MDS. Additionally, VIDAZA^® was granted orphan drug designation by the FDA for the treatment of acute myeloid leukemia. We sell ALKERAN^® in the United States, which we obtain through a supply and distribution agreement with GlaxoSmithKline, or GSK. The agreement with GSK expires in March 2009 and the current expectation is that it will not be renewed. Subsequent to expiration of the agreement, GSK will be required to pay Celgene a royalty on sales of the product made by GSK for the first 24 months following expiration. We also sell FOCALIN^®, which we sell exclusively to Novartis Pharma AG, or Novartis. Another source of revenue is derived from royalties which we primarily receive from Novartis on its sales of the entire family of RITALIN^® drugs and FOCALIN XR^®.

In the second quarter of 2008, we received FDA and the European Medicines Agency, or EMEA, clearance to open our new manufacturing facility in Switzerland. This state of the art facility provides us with operational and financial advantages for delivering REVLIMID^® and potentially other oral therapies to patients worldwide.

On March 7, 2008, we acquired all of the outstanding common stock and stock options of Pharmion Corporation in a transaction accounted for under the purchase method of accounting. Under the purchase method of accounting, the assets and liabilities of Pharmion were recorded as of the acquisition date, at their respective fair values, and consolidated with our financial statements. Prior to the acquisition, Pharmion was a global biopharmaceutical company that acquired, developed and commercialized innovative products for the treatment of hematology and oncology patients. We acquired Pharmion to enhance our portfolio of therapies for patients with life-threatening illnesses worldwide with the addition of Pharmion’s marketed products, and several products in development for the treatment of hematological and solid tumor cancers. Pharmion’s results of operations are included in our consolidated financial statements from the date of acquisition. The purchase price, including acquisition-related fees and all other costs, as determined on March 7, 2008 was $2.761 billion and includes the previously owned Pharmion shares at historical cost. This amount was based on the total number of Pharmion shares outstanding, including Pharmion shares owned by Celgene at that time and Pharmion stock options outstanding.

The impact of purchase accounting, based on a preliminary valuation, resulted in charges in the nine-month period ended September 30, 2008 including $1.74 billion for acquired in-process research and development (IPR&D), $76.2 million for amortization of acquired intangible assets which are being amortized over a weighted average period of 6.5 years, and $18.7 million of the $25.0 million related to the step-up to fair value of Pharmion’s product inventory. The $1.74 billion IPR&D charge related to various research and development projects which had not been completed and for which there was no alternative future use. The amount of the charge was determined by estimating the risk-adjusted future value of these projects discounted at rates between 9 percent and 11 percent.

We are dedicated to innovative research and development designed to bring new therapies to market and are involved in research in several scientific areas that may deliver proprietary next-generation therapies, such as intracellular signaling, immunomodulation and placental stem cell research. The drug and cell therapies we develop are designed to treat life-threatening diseases or chronic debilitating conditions where patients are poorly served by current therapies. Building on our growing knowledge of the biology underlying hematological and solid tumor cancers and immune-inflammatory diseases, we are investing in a range of innovative therapeutic programs that are investigating ways to treat and manage chronic diseases by targeting the disease source through multiple mechanisms of action. In March 2008, amrubicin, a third-generation fully synthetic anthracyclin obtained in the Pharmion acquisition, was granted orphan drug designation by the FDA for the treatment of small cell lung cancer. In September 2008, amrubicin was granted Fast Track product designation by the FDA for the treatment of small cell lung cancer after first-line chemotherapy. A drug designated as a Fast Track product is intended for the treatment of a serious or life-threatening condition and demonstrates the potential to provide a therapy where none exists or provide a therapy which may offer a significant improvement in safety and/or effectiveness over existing therapy. Celgene Cellular Therapeutics has successfully filed an Investigational New Drug, or IND, application with the FDA for its human placenta derived cell product (PDA001). This filing will allow a multi-center Phase I clinical trial in patients with moderate-to-severe Crohn’s disease refractory to oral corticosteroids and immune suppressants to proceed.

Our future growth and operating results will depend on the successful integration of Pharmion, continued acceptance of our currently marketed products, regulatory approvals of both new products and expanded use of existing products, depth of our product pipeline and ability to commercialize these products, competition to our marketed products and challenges to our intellectual property. See also Risk Factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 and Part II, Item 1A on Form 10-Q for the quarter ended March 31, 2008.

The following tables summarize total revenues and earnings for the three- and nine-month periods ended September 30, 2008 and 2007:

		Three-Month Periods Ended
		September 30,												Percent
(Amounts in thousands, except earnings per share)		2008				2007				Increase				Change
Total revenue		$	592,465			$	349,908			$	242,557				69.3	%
Net income		$	136,814			$	38,833			$	97,981				252.3	%
Diluted earnings per share		$	0.29			$	0.09			$	0.20				222.2	%

		Nine-Month Periods Ended
		September 30,								Increase				Percent
		2008				2007				(Decrease)				Change
Total revenue		$	1,626,527			$	991,230			$	635,297				64.1	%
Net (loss) income		$	(1,384,391	)		$	151,112			$	(1,535,503	)			N/A
Diluted (losses) earnings per share		$	(3.17	)		$	0.36			$	(3.53	)			N/A

The increase in revenue for the comparative three- and nine-month periods above reflect the continued growth of REVLIMID^® and inclusion of sales of former Pharmion products. The net loss in the nine-month period ended September 30, 2008 was primarily due to an in-process research and development charge and amortization of acquisition intangibles related to our acquisition of Pharmion in March 2008, which offset the favorable impact of increased revenues.

Results of Operations:

Three-Month Periods Ended September 30, 2008 and 2007

Total Revenue: Total revenue and related percentages for the three-month periods ended September 30, 2008 and 2007 were as follows:

		Three-Month Periods Ended
		September 30,								Increase				Percent
(Amounts in thousands)		2008				2007				(Decrease)				Change
Net product sales:
REVLIMID®		$	342,620			$	199,261			$	143,359				71.9	%
THALOMID® / Thalidomide			132,368				110,730				21,638				19.5	%
VIDAZA®			63,531				—				63,531				N/A
ALKERAN®			21,802				18,858				2,944				15.6	%
Other			6,696				2,320				4,376				188.6	%
Total net product sales		$	567,017			$	331,169			$	235,848				71.2	%
Collaborative agreements and other revenue			2,402				4,616				(2,214	)			-48.0	%
Royalty revenue			23,046				14,123				8,923				63.2	%
Total revenue		$	592,465			$	349,908			$	242,557				69.3	%

REVLIMID^® net sales increased for the three-month period ended September 30, 2008 compared to the three-month period ended September 30, 2007 primarily due to increased unit sales in the United States and international markets. Increased market penetration and the increase in duration of patients using REVLIMID^® in multiple myeloma accounted for most of the U.S. growth. International sales in the 2008 three-month period reflect the expansion of our international commercial activities in over 65 countries.

THALOMID^® / Thalidomide net sales increased for the three-month period ended September 30, 2008 compared to the three-month period ended September 30, 2007 primarily due to the inclusion of 2008 sales recorded by former Pharmion entities.

VIDAZA^® was acquired as part of the purchase of Pharmion effective March 7, 2008.

ALKERAN^â net sales were higher for the three-month period ended September 30, 2008 compared to the three-month period ended September 30, 2007 primarily due to an increase in unit sales of the injectable form.

Net product sales for the three-month period ended September 30, 2008 increased $235.8 million, or 71.2%, compared to the three-month period ended September 30, 2007. The change was comprised of net volume increases of $204.1 million, or 61.7%, as well as price increases of $27.6 million, or 8.3%, and impact of foreign exchange of $4.1 million or 1.2%.

Collaborative Agreements and Other Revenue: Revenues from collaborative agreements and other sources declined by $2.2 million for the three-month period ended September 30, 2008 compared to the three-month period ended September 30, 2007 due to the elimination of license fees and amortization of deferred revenues related to Pharmion.

Royalty Revenue: Royalty revenue totaled $23.0 million for the three-month period ended September 30, 2008, representing an increase of $8.9 million, compared to the three-month period ended September 30, 2007. The increase was primarily due to amounts received from Novartis on sales of the entire family of RITALIN^® drugs and FOCALIN XR^®. Royalty revenue for the three-month period ended September 30, 2007 was unfavorably impacted by a decline in Novartis’ sales volume which was impacted by a drawdown of its wholesalers’ inventories.

Gross to Net Sales Accruals: We record gross to net sales accruals for sales returns and allowances; sales discounts; government rebates; and chargebacks and distributor service fees.

•

We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we use to calculate these estimates does not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience. Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates. Any changes from the historical trend rates are considered in determining the current sales return allowance. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result, wholesalers do not stock the product. REVLIMID® is distributed primarily through contracted pharmacies lending itself to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity to date. VIDAZA® and ALKERAN® are sold in the United States to pharmaceutical wholesalers, who in turn distribute product to physicians, retail pharmacies, hospitals and other institutional customers.

•

Sales discount accruals are based on payment terms extended to customers.

•

Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate amount formula established by the Center for Medicaid and Medicare Services. Certain foreign markets have government-sponsored programs that require rebates to be paid and accordingly the rebate accruals are determined primarily on estimated eligible sales.

•

Chargebacks and distributor service fees accruals are based on the differentials between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Distributor services accruals are based on contractual fees to be paid to the wholesale distributor for services provided. On January 28, 2008, the Fiscal Year 2008 National Defense Authorization Act was enacted, which expands TRICARE to include prescription drugs dispensed by TRICARE retail network pharmacies. TRICARE rebate accruals reflect this program expansion and are based on estimated Department of Defense eligible sales multiplied by the TRICARE rebate formula.

See Critical Accounting Policies for further discussion of gross to net sales accruals.

Gross to net sales accruals and the balance in the related allowance accounts for the three-month periods ended September 30, 2008 and 2007 were as follows:

		Returns												Chargebacks
(Amounts in thousands)		and								Government				and Dist.
2008		Allowances				Discounts				Rebates				Service Fees				Total
Balance at June 30, 2008		$	17,949			$	3,195			$	23,481			$	20,571			$	65,196
Allowances for sales during 2008			948				9,065				9,579				22,514				42,106
Credits/deductions issued for prior year sales			(2,439	)			—				(44	)			(22	)			(2,505	)
Credits/deductions issued for sales during 2008			(686	)			(9,188	)			(9,319	)			(22,996	)			(42,189	)
Balance at September 30, 2008		$	15,772			$	3,072			$	23,697			$	20,067			$	62,608

		Returns												Chargebacks
(Amounts in thousands)		and								Government				and Dist.
2007		Allowances				Discounts				Rebates				Service Fees				Total
Balance at June 30, 2007		$	14,944			$	2,617			$	9,167			$	9,058			$	35,786
Allowances for sales during 2007			4,015				7,640				6,626				19,083				37,364
Allowances for sales during prior periods			6,022				—				—				—				6,022
Credits/deductions issued for prior year sales			(4,010	)			(23	)			(29	)			—				(4,062	)
Credits/deductions issued for sales during 2007			(1,545	)			(7,151	)			(5,930	)			(16,514	)			(31,140	)
Balance at September 30, 2007		$	19,426			$	3,083			$	9,834			$	11,627			$	43,970